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Underutilisation of Labour in (Continental Western) Europe: A Detailed GDP Accounting Perspective

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  • Gilles Mourre

Abstract

The paper decomposes GDP both in terms of level per capita and growth rate, so as to identify the extent of labour utilisation in Europe and its effect on income differences and economic growth in all EU27 countries. While some caveats are associated with this approach, GDP is broken down into 5 items (per capita GDP level) and 12 (GDP growth), decomposing labour inputs thoroughly and including a partial but comparable indicator of labour quality, based on the employment composition by educational attainment. The level of labour utilisation in the EU, defined as hours worked per capita, is clearly lower than that seen in the US and the 5 richest EU countries. The labour underutilisation accounts for two thirds of the per capita GDP gap in the EU15 vis-à-vis the US (17 p.p. out of 26%). The underutilisation of labour is much lower in the New Member States, being only 9% below the US level and is even above that in the five richest EU Member States. While the combination of lower labour utilisation and lower per-hour productivity is the cause of relatively low per capita GDP in euro area and EU15 countries, weak hourly productivity is the main concern in the New Member States. Over the last ten years (1995-2006), the growth in labour input (i.e. total hours worked) was the driving force behind one third of GDP growth in the EU15, while labour input growth only explained a very modest part of the buoyant GDP growth in the New Member States.

Suggested Citation

  • Gilles Mourre, 2009. "Underutilisation of Labour in (Continental Western) Europe: A Detailed GDP Accounting Perspective," Working Papers CEB 09-050.RS, ULB -- Universite Libre de Bruxelles.
  • Handle: RePEc:sol:wpaper:09-050
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    Cited by:

    1. Matei, Ani & Matei, Lucica, 2010. "Reducing the Administrative Expenditures as Source for Increasing the Efficiency of Local Governance under Conditions of the Financial Crisis," Apas Papers 150, Academic Public Administration Studies Archive - APAS.
    2. Matei, Ani & Dinu, Teodora, 2009. "Improvement of Government Financing through Non-Conventional Methods: Reducing the Administrative Costs in the Public Sector," MPRA Paper 18905, University Library of Munich, Germany, revised 17 Jun 2009.
    3. Matei, Ani & Matei, Lucica, 2011. "Knowledge marketing and development in the new knowledge-based economy," MPRA Paper 31474, University Library of Munich, Germany, revised 10 Jun 2011.

    More about this item

    Keywords

    GDP accounting; European Union; Aggregate employment; Average hours worked; Quality of Labour.;

    JEL classification:

    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O52 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Europe

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